Straight from the "Things Are Not Always What They Seem" department, we bring you an example of why it pays to dig deep into the facts.
This morning we read "Solar Guys Burning $ In Their Pockets" on alarm:clock and were mightily impressed: Mill Valley solar startup Solar Power Partners projected it would bring in $10 million in its first year (wow), but finds itself more on target for $29 million (double wow.) Any startup with that kind of growth and first year revenue must be insanely successful right? Sort of.
SPP's business is to shoulder the cost of building and maintaining solar power stations on a business' property in exchange for a long-term contract called a Power Purchase Agreement through which the business will buy the solar power generated at a pre-determined rate, typically one that undercuts a conventional utility. Kind of a no-brainer for a business: cheap power and green bragging rights.
SPP, which is one of many companies employing this PPA model, has done well so far, scoring some unexpectedly large contracts, including one for a two megawatt solar array at the Fresno airport and a contract to build solar panels on the roofs of 23 Safeway supermarkets. Deals like these account for the jump in expected revenue.
But it turns out SPP's business is just as much an investment vehicle as a do-gooder green power company. "The secret sauce is in the financing model," says Ron Pernick, principal of energy consulting firm Clean Edge. Investors throw millions into building these solar arrays, for which they get handsome state and federal tax credits. (California is generous with them when it comes to clean energy.) The arrays, which are massively expensive to build, then bring in a predictable and reliable amount over the duration of the contract, which is typically 15 years. In that respect, it's not all that different from a savings account with a fixed interest rate.
Though the dollars involved are big, the margins are, as SPP co-founder and COO Alexander von Welczeck pointed out to us, " very thin." SPP expects to end the year break even on its $29 million in revenue. Which is definitely impressive, but not as impressive as it would be if SPP were, say, a software company.
